Summary
• European importers are still cautious.
• Japan’s tropical log stocks are low.
• Lumber prices have risen, but they’ve not matched the increase in African prices.
• Malaysian processors are keeping their stocks low.
• Log exports from Papua New Guinea have increased

As forecast in our report earlier in the year, the steady upwards movement in prices for Far East logs and lumber that began during 2010 has continued. The rate of change has slowed and, although reported prices at mid-July showed very minimal increases for logs of US$2-3/m³ over the mid-June figures, some buyers for Japan say that on the contrary, prices for small logs are lower by as much as US$15-20/m³ and that the upwards trend has petered out already.

At the same time it is known that tropical log stocks in Japan are low so that it seems that, despite these different opinions, producers and exporters may well by now have reached a stable price platform that will hold, with only minor variations up or down at least through the rest of the third quarter.

As well, the timber industry in Japan is still reducing import volumes of tropical logs whilst importing greater volumes of timber and plywood from Australia, North America and New Zealand and much more plywood from China, which has now overtaken Indonesia as the largest supplier of plywood to Japan.

Log prices

Looking back to the beginning of the year, log prices did make gains of US$10-15/m³ for meranti SQ and up, and slightly more for small and super small. Keruing logs increased by roughly the same, while selangan batu increased by US$16-20/m³. Sawn lumber export prices also showed gains of US$11-20/m³ but nowhere did lumber prices in the region equal the massive increases achieved in the past two months by a few of the premium west and central African timbers. The possible exception would be bangkirai as prices have escalated because of heavy demand from Europe.

It is likely the tight log supply in Malaysia may continue as Sarawak loggers report good production but ongoing difficulties in barging logs due to low river water levels. Sarawak has become a major supplier of logs to India, part of the recent trend for much greater inter-regional trade than used to be the case as the steady decline of imports of Tropical Timbers into European countries was more than matched by exports to the fast-growing economies of India and China. Some Peninsular timber processors are said to be considering the import of logs from New Zealand or other countries and in the long run this could assist in continuity of supply and lowering production costs for utility products while conserving tropical forest resources.

Papua New Guinea also could be a new supplier as log exports have increased significantly over the past few years, leading to PNG being the largest volume supplier of tropical logs to China.

In the meantime Malaysian processors say that their log and other material stocks are being purposely kept low because of concerns over the uncertain economic situation in major markets in the US and some European countries. While the housing market in Japan has continued its recent improvement, the position in the US remains subdued as housing starts are still not high enough to add any increment to the housing stock. Exporters note that housebuilding and general construction work in Europe also is being restrained by budget cuts and economic restraints.

Plywood exports

Indonesian and Malaysian plywood export prices shot up quite sharply in response to the expected strong demand from Japan following the tsunami, with further increases of US$20/m³ or more, but may have been restrained to some extent by the competing well-priced exports from China. Production of plywood in China has risen by 60% in the past two years and European buyers too have imported much higher volumes during the year, at prices that are highly competitive. A recent ITTO TTM report quoted statistics from France that showed a decline in the traditional use of okoumé plywood in favour of lower cost alternatives.

Malaysian furniture exports have disappointed with a small decline, although the government forecasts that the full-year export figures will show an increase over 2010.

Demand from China and India

Markets for the Asia-Pacific region are still driven strongly by demand from China and India, although the more pessimistic observers are beginning to speculate on how long the boom conditions can be maintained. One recent report is of timber and other labour intensive processing industries in India deciding they now need to invest in more sophisticated machinery and handling equipment because of the higher pay and better conditions demanded by workers.

There are now strong signs of exporter countries in the region focusing more closely on the controls that need to be in place to comply with the forthcoming FLEGT regulations for Europe and with the US Lacey Act. Malaysia is floating the idea of a new umbrella-type organisation that presumably would co-ordinate all the many sectors involved with production of Malaysian timber and timber products, which seems to be a sound approach to ensure that not only raw timber but also furniture and other highly processed export products fully meet the requirements for legally sourced timber. Indonesia is taking steps to have the industry meet FSC standards and has appointed an overseas organisation to monitor, control and supervise compliance.

European buying

Back to the markets, European importers are still very cautious, not building stock from present low levels and have returned to buying in smaller lots from the Far East because lead times for African species have extended to two to three months.

It is far from clear whether there will be the usual buying mini-boom as the autumn approaches and importers top up stock to cover for the winter months. It’s doubtful as many consider prices are as high as the market will stand and, while supply is not excessive, consumer demand is subdued and producer prices may ease marginally at the end of the fourth quarter. China and India show no signs of easing up on demand and prices now appear quite stable at the current levels.